Just like any other legal claim, the law allows only specific amount of time for creditors to file a lawsuit for debt owed. This window of time to file a lawsuit or other legal proceeding is called “statute of limitations.” In California, the statute of limitations on most debts is four years. This means that, with some limited exceptions, creditors and debt buyers cannot sue a debtor for debt that is more than four years old. The statute of limitations is reduced to two years for debt that is based on a verbal agreement.
However, determining exactly when the statute has run is a bit more complicated that most think. That is why it is best to contact an experienced attorney as soon as possible if you are being harassed by a creditor.
When Does the Statute of Limitations Start to Run?
The answer as to when the statute of limitations begins to run on a debt depends on the circumstances. But typically, it starts to run as of the date of the first missed payment. Certain actions can also re-start the statute of limitations, either during the four-year period or after it has expired. However, since California law is stricter on this point, it is not as easy to accidentally re-start the clock.
Once you have made a payment on your debt, it may be sufficient to stop the statute of limitations from ticking. In such a case, the four year period would then re-start if you missed a payment again.
Credit Reporting After the Statute of Limitations Has Run
The time frame for pursuing a debt collection lawsuit or other legal collection process is different and separate from the amount of time an account may appear on your credit report. Most entries on consumer credit report have to be deleted after seven years. In other words, under California law, although there is a three-year period when the debt is no longer legally collectible, the delinquent account cans till continue to appear on your credit report.
Creditors often use credit reporting as a pressure point to force consumers to pay debt even though they can no longer be sued – especially if an outstanding delinquent account is an obstacle for the debtor to secure credit for a major purchase.